U.S. Dollar Drops to Two-Month Low as Markets Price 70% Chance of Fed Pause

TLDR

• The Dollar Spot Index fell to 99.33, its lowest level since June 5
• Weak U.S. jobs, retail sales, and inflation data drove the decline
• Money markets now price a 70% chance the Fed holds rates in September
• The Japanese yen traded near 159.00 despite a GDP miss; Bank of Japan may hike in September
• The Indian rupee faced selling pressure as the RBI tightened its forex defense measures

The U.S. dollar fell to its lowest level in over two months on Monday. The Dollar Spot Index dropped 0.3% to 99.33, a level not seen since June 5.

The move came after a run of soft U.S. economic data. July nonfarm payrolls contracted, retail sales fell 0.6%, and both the Consumer Price Index and Producer Price Index came in flat or on target.

That data combination removed the case for the Federal Reserve to raise rates in the near term.

Money markets now put a 70% probability on the Fed holding rates steady at its September meeting. Before the August 7 payrolls report, the odds of a rate hike were above 50%.

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